North Korean Economy Watch

Some thought it was possible that Kim Jong-un might deliver a new year’s address (as Kim Il-sung always did), but instead the leadership has chosen to follow the practice of the Kim Jong-il era by issuing a “joint editorial” by Rodong Sinmun, Joson Inmingun, and Chongnyon Jonwi.

Since I am writing this post well after the joint editorial has already been published, numerous commentators have already weighed in: Choson Exchange, Daily NK, Washington Post, CNN, Business Week, Hankyoreh, IFES, Xinhua.

Below is the full text of the Joint New Year Editorial c/o North East Asia Matters. My hat off to anyone who actually reads the whole thing:

(more…)

Andrei Lankov writes in the Asia Times:

It is often overlooked how much North Korea has changed over the past 20 years. Its Stalinist and militaristic facade is carefully maintained by the state, but in the new circumstances it is increasingly misleading. Behind this official veneer of militant posters and goose-stepping soldiers, the society itself has changed much.

In a nutshell, the past two decades were the time when the state was steadily retreating from the private life, and also was losing its ability (perhaps also its will) to control the daily activities of its subjects as well as how they made a living. One of many significant changes has been the steady decline in the significance attached to family background (known as songbun in North Korean parlance) – once the single most important factor that determined the life of a North Korean.

Family background did matter in other communist countries as well, but to a much lesser extent. For example, in the Soviet Union immediately after the 1917 communist revolution, scions of aristocrats, descendants of priests, and merchants faced many kinds of discrimination. It was more difficult for them to enter a college or to be promoted, and they were more likely to be arrested for alleged political crimes. However, this discrimination had disappeared by the late 1940s, so in the days of my youth, in the 1970s and 1980s, it had become quite normal in the USSR to boast about real or alleged aristocratic family roots.

North Korea is very different. In 1957, the authorities launched a large-scale and ambitious investigation of the family backgrounds of virtually all North Korean citizens. As a result of this and subsequent investigations, by the mid-1960s the entire population was divided into a number of hereditary groups, somewhat akin to the estates of medieval Europe. Career chances and life prospects of every North Korean were determined, to a very large extent, by his membership in one of these strictly defined groups.
The major criteria of classification were quite straightforward: the songbun (origin) of the North Korean was largely defined by what his or her direct male ancestors did in the 1930s and 1940s.

The official songbun structure was quite elaborate and changed over time. However, at the first approximation, there have been three groups in North Korea, usually known as “core”, “wavering” and “hostile” classes. Every single North Korean had to belong to one of these groups.

The “hostile class” included people whose ancestors in or around 1945 were engaged in activities that were not to the regime’s liking. Among others, this group included descendants of clerks in the Japanese colonial administration, Christian activists, female shamans, entrepreneurs, and defectors to the South. Members of the hostile class faced the greatest number of restrictions: They could not live in Pyongyang or other major cities and they could not be admitted to good colleges or universities. People whose songbun was exceptionally bad would not even be drafted into the military.

Members of the “core class” included those whose direct male ancestors contributed toward the foundation and strengthening of the Kim family regime. They were descendants of anti-Japanese guerrillas, heroes of the Korean War, or party bureaucrats. For all practical purposes, over the past half-century, only these people could be promoted to key positions in the North Korean state and party bureaucracy. They constituted the hereditary elite.

In the days of Kim Il-sung’s rule, from the early 1960s to the early 1990s, songbun was of paramount significance. It determined where people lived and worked and even what they ate. Most marriages were also concluded between people of the same or similar songbun.

It was also important that the songbun was, in essence, unchallengeable. It was inherited from one’s father and was then bestowed on one’s children. The mother’s songbun did not matter. I know a couple where the husband’s songbun was bad (he was a “landowner’s grandson”), but the wife had the best songbun imaginable, being a descendant of a family that once was involved with the anti-Japanese guerrillas of Kim Il-sung. Frankly, such a marriage was rare and unequal – in most cases women of such standing would be as reluctant to marry a man of low origin as, say, a European noble lady from the 17th century. However, in this particular case the marriage did take place, much against the resistance of the girl’s parents.

In due time, though, the spouses discovered that the wife’s songbun did not really matter. Their daughter, a promising athlete, could not be sent for further training, since her songbun was bad: the great-granddaughter of a minor landlord could not compete on the national level and, for that matter, could be accepted only to a junior college.

In Kim Il-sung’s era – that is, before 1994 – the state was in near-complete control of an individual’s life. The only way to achieve high status and affluence was to climb the official bureaucratic ladder. As a North Korean friend put it in the late 1980s: “I hate officials, but I want to become an official, because in our country, only officials can live well.” Indeed, in Kim Il-sung’s North Korea all material goods were distributed by the state and almost all income was derived from work in state industry or the state bureaucracy.

But things started to change dramatically in the early 1990s. The state sector, suddenly deprived of Soviet subsidies, collapsed. North Koreans suddenly discovered that food rations were no longer forthcoming and their official monthly salary would only buy 1 or 2 kilograms of rice. Predictably, mass starvation followed, killing at least a half-million people.

To survive, the North Korean people literally rediscovered capitalism. Estimates vary, but the consensus is that over the past 10-15 years, the average North Korean family has come to draw most of its income from what can be described as black-market activities. Actually the so-called black market is not particularly black, since the government – in spite of occasional crackdowns – has tacitly tolerated its existence since the mid-1990s. Nowadays North Koreans work on individual fields on steep mountain slopes, they establish private workshops to produce garments and assorted consumer goods, and they smuggle and trade.

The new and increasingly dominant unofficial economy is in essence capitalist. As such, it rewards those who are sufficiently industrious, greedy, intelligent, ruthless and disciplined – and in some cases, it rewards them handsomely. Social inequality is growing and many a successful merchant or workshop owner lives better than a middle-ranking bureaucrat. A successful entrepreneur might have all trappings of luxury – including, say, a Chinese motorbike or a refrigerator, which in North Korea can be seen as roughly equivalent to a Lexus and a yacht.

The success in the emerging new economy is usually unrelated to one’s songbun. In fact, sometimes it seems that people with bad songbun tend to be more successful nowadays – perhaps because back in the 1990s they had no expectations of the state and were the first to jump into the murky waters of the emerging North Korean market economy.

Of late, the previously attractive career avenues have lost much of their allure. For example, in the past, many North Koreans were willing to do their long and tedious military service, which lasted some seven to 10 years. This popularity was easy to explain: For a person with average songbun, this would be the only way to get into the bottom tiers of the bureaucracy. As a North Korean told it, recalling the time of her youth, the 1970s: “The only way to become somebody was to go into the military, join the Korean Workers Party while on the active service, and then come back to become an official.”

Recently, however, military service has lost much of its popularity. Few people would be willing spend 10 years in a squalid barracks so as eventually to become a minor official in the city administration. Such a job is still attractive, to be sure, but it seems preferable to become a smuggler or a merchant, whose income far exceeds that of a petty bureaucrat.

Still, on the very top, songbun is important, since the key administrative positions are held by those with good songbun, and a mid- or high-level official can make a nice income by milking the private economy. Hence people with good songbun still often think about capitalizing on the real or alleged contribution of their ancestors to the establishment of the North Korean regime. However, for a majority the emergence of markets opened a new, faster and more attractive (but also more risky) avenue of social mobility.

North Korean society has become defined by one’s relationship to money, not by one’s relationship to the bureaucracy or one’s inherited caste status. Money talks, and for better or worse, in North Korea, money talks ever louder. As a female refugee in her early 40s put it recently: “Under Kim Il-sung, songbun was very important, it decided everything. Under Kim Jong-il, things are different – your family background still matters, but money nowadays is more important than social background.”

Read the full story here:
North Korea’s new class system
Asia Times
Andrei Lankov
2011-12-3

Aidan Foster-Carter writes a compendium of problems facing the DPRK economy in 38 North.

Paraphrasing the ailments he cites: Socialism, militarism, royal economy, cult costs, potempkinism, leadership whims, rigidities, coordination problems, unwise leadership priorities.

Read the full story (which is full of fantastic anecdotes) below:
Whim Jong Il: North Korea’s Economic Irrationalities
38 North
Aidan Foster-Carter
2011-11-26

Institute for Far Eastern Studies (IFES)
2011-11-03

In order to celebrate Kim Il Sung’s centennial birthday next year on April 15, 2012, the plan to build 100,000 private homes in Pyongyang is quickly underway. North Korea has announced its intension to upgrade Pyongyang into a city with over 100,000 homes. Pyongyang’s district of Mansudae is to build over one thousand units of high-rise apartments (77 stories), theaters, parks and other recreational facilities.

The KCNA reported on October 11, “For the next Day of the Sun, Pyongyang will be completely transformed.” The news added, “The construction of private homes has been in progress for five months and is at 70 percent completion. Mansudae District is rapidly changing with skyscrapers and high-rise apartments appearing throughout the city. Construction of theaters and service facilities are also in development.”

Facing Mansudae is Dongpyongyang District, another area in Pyongyang under enhancement and has secured over 17,400 square meters of land for multi-purpose service facilities and 9,660 square meters for a public outdoor ice rink. The KCNA elaborated, “The multi-purpose facilities encompass bathhouses, beauty salons, and other latest facilities of convenience. In the public outdoor ice rink, circular ice rink, bleachers and cultural recreational facilities will be built to provide necessary environment for people to enjoy various ice sports.”

Rungrado Recreation Ground is also reported to be rejuvenated with a variety of amusement rides and multipurpose water park. The water park will be equipped with wave pools, waterslides, and health pools.

In addition, Pyongyang is focusing on gardening and exterior beautification projects for private homes and public buildings, including installation of colorful tiles and paints as well as bright neon signs in the streets.

“The Development Project of 100,000 Housing Units in Pyongyang” went into effect since 2009 but talks of reducing the project to 20,000 homes surfaced when it was faced with funding difficulties. However, the original plan of building 100,000 homes has not faltered and appears to be in full swing.

Early this year on January 3, a public rally was held at the Kim Il Sung Square with over 100,000 people present. At that time, the homebuilding project of Pyongyang was announced in which “Pyongyang City will be equipped to enter the era of strong and prosperous nation in all sectors.”

In July 2008, the General Bureau of Capital Construction began a large-scale redevelopment project. Completed a year later on September 2009, 600 old homes mostly built in the 1960s were demolished and in their place an apartment complex with over 800 homes went up. This project received undivided attention from Kim Jong Il, Chang Sung-Thaek, administrative director of the Worker’s Party of Korea, among many other top officials of North Korea.

For North Korea, “The Development Project of 100,000 Housing Units in Pyongyang” has become a symbol of building a strong and prosperous nation.

Additional information:
1. Previous posts on the DPRK’s “2012 Kangsong Taeguk” policies can be found here.

2. Previous posts on “Construction” can be found here.

3. The Pyongyang’s university students are (mostly) involved in construction projects.

4. See photos of the construction by Ray Cunningham here.

According to the Daily NK:

North Korea is pushing every angle to try and obtain more foreign currency to bolster its coughers and fund its 2012 festivities.

According to North Korean sources, apart from the standard blanket expropriation of a large proportion of the $200-1500 per month incomes of laborers based abroad, in recent times the authorities have also started to move in on the reserves of ordinary citizens inside North Korea’s borders.

Various enterprises and organizations are said to be in fierce competition to get hold of whatever foreign currency and gold is held by the people. Trade banks have also apparently responded to the situation by offering to exchange foreign currency at the black market rate of 2,800 won per U.S. dollar, instead of the laughable official exchange rate.

Elsewhere, mobile phone sales are helping the regime to dredge currency from the people. The North Korean Ministry of Communications is reportedly making impressive profits by monopolizing the importation of phones made by Chinese companies ZTE and Huawei, buying them for $80 per handset and reselling them for $300. Based on known prices, connection fees and a service take-up of 700,000 people so far, the authorities have presumably managed to earn $250m through this practice alone.

Overseas Koreans also say they are being pushed to add to the funding drive. Ethnic Koreans in the United States have claimed that North Korea has offered them the chance to reunite with long lost family members in the North for a cost of several thousand dollars per person, including brokerage and security fees, although this has been apparently going on for a number of years.

Over in Japan, meanwhile, it was also revealed by weekly publication AERA that North Korea has sent letters to elderly members of the Chongryon inviting them to return to North Korea with the promise of being able to live well on their pensions. It is suspected that the North hopes to be able to withhold news of their eventual passing so as to keep receiving the pensions in the medium term.

Finally, the workers and businesses at the Kaeseong Industrial Complex have also become a target of the fund raising drive. North Korean management in the Complex requested back in August that South Korean businesses stop offering ‘Choco-pies’ (a South Korean snack) to North Korean workers and give them cash instead.

However, the overall results are unlikely to be positive. The planned illusion of plenty may be briefly achieved next year, but the majority of experts agree that the North Korean regime is now distorting the economy more and more by focusing on events idolizing the Kim family at the expense of other issues that will inevitably come back to haunt the regime later.

Yonhap also reported on this story.

Read the full Daily NK piece here:
2012 Funding International Overdrive
Daily NK
2011-10-31

1. “Relying on One’s Strength: The Growth of the Private Agriculture in Borderland Areas of North Korea”
Andrei Lankov，Seok Hyang Kim ，Inok Kwa
PDF of the article here 

The two decades which followed the collapse of the communist bloc were a period of dramatic social and economic transformation in North Korea. The 1990-2010 period was a time when market economy re-emerged in North Korea where once could be seen as the most perfect example of the Stalinist economic model. The present article deals with one of the major areas of socioeconomic change which, so far, has not been the focus of previous studies. The topic is about the growth of private agricultural activities in North Korea after 1990. This growth constitutes a significant phenomenon which has important social consequences and also is important from a purely economic point of view: it seems that the spontaneous growth of private plots played a major role in the recent improvement of the food situation inside North Korea.

______________________

3. Korea Sharing Movement anti-malarial program (Via Cancor)
Read a PDF of on the project here

______________________

4. What is it like to teach at the Pyongyang University of Science and Technology (PUST)?
Find out from one instructor here. More on PUST here.

According to the Daily NK:

The North Korean authorities in Hamheung are demanding 150,000 won from each trader in local markets to support construction projects in Pyongyang, according to a source from the city.

“Since the start of October, Hamheung Municipal People’s Committee has been taking money from market traders on the premise that ‘You have to give material support to Pyongyang construction workers,’” the source told the Daily NK today. “In the case of traders in the markets in Hoisang and Sapo, they are being asked for as much as 150,000 won each.”

Hamheung is the most famous industrial city in North Korea, and as such has larger markets than many other places. Thus, given that each of the two markets mentioned by the source has more than 500 traders, if the authorities were to reach their goal figure then they would be able to take 75,000,000 won from each one.

However, the Market Management Office for each market already receives 300-500 won per day from traders in the form of a ‘stall tax’, with sellers of home appliances and other high priced goods paying 500 won and those who sell food only paying 300 won. Thus, 150,000 won represents a huge cost, and many traders are apparently reacting to the demand with incredulity.

The source also noted that this does not appear to represent a central Party directive, with only traders in South Hamkyung and Yangkang Province having been hit by it to date.

“In Hyesan Market in Yangkang Province, it is 100,000 won per trader,” the source revealed, adding, “It seems like a case of the provincial Party preparing funds to support Pyongyang construction by taking money from traders.”

Elsewhere, although traders are now angry at the demand for funding, everything else is good, with official market controls being very lightly implemented at the moment, according to the source.

“The market is open from morning to night, and with the exception of the usual crackdowns on grasshopper traders there are no notable inspections,” he revealed.

But then, he added sarcastically, “They are taking money from the market as if it were some kind of state industry, so maybe that’s why they are leaving it alone.”

Read the full story here:
To Hamheung Traders: 150,000 Won for Pyongyang!
Daily NK
Lee Seok Young
2011-10-18

Pictured above: An annual index measure of economic freedom in the DPRK from 1995 to 2011, published by the Heritage Foundation’s and Wall Street Journal’s Index of Economic Freedom.

Andrei Lankov writes in the Asia Times:

[The] Heritage foundation and the Wall Street Journal recently published a new edition of their annual index of economic freedom, according to which North Korea has the world’s least-free economy. One can hardly argue about this – North Korea has for decades worked hard to take Stalinism to its logical extremes, and slightly beyond that.

However, one gets perplexed when looking at the grades of unfreedom that are given by the Heritage Foundation to the North through the 1995-2011 period. According to the index, the level of economic unfreedom in North Korea was essentially the same throughout the entire 1996-2005 period. Then, in 2005 it deteriorated considerably and has continued a slow downward slide until now.

This depiction is bound to raise the eyebrows of anyone who is familiar with actual economic trends in North Korea. The graph is correct when it says that the economy became more restrictive in 2005, when the government tried to re-introduce the rationing and reconfirmed the ban on the private sale of grain (such a ban had existed since 1957, but ceased to be enforced around 1990).

However, the 2005 measures were, essentially, a backlash, an attempt to reverse the half-baked reforms of 2002 – and those reforms can be described only as liberalizing.

On balance, the 2002 reforms should not be overestimated. Nonetheless, the 2002 reforms legalized a significant part of the black economy, and also granted managers of state-owned industrial enterprises a measure of managerial freedom they had not had for many decades.

If this was not an increase in economic freedom, what was it? But the Heritage Foundation graph does not give any hint of this change: the line that purports to depict the level of economic freedom remains on the same low level in 2002.

This is more interesting because 1997-2002 was when actual economic freedom increased dramatically. The old hyper-Stalinist laws remained technically effective, but nobody bothered to enforce these restrictions. It is estimated that in the early 2000s, the average North Korean family drew some 80% of its income from various market activities.

This was technically illegal, but the authorities were ready to turn a blind eye to the re-emergence of some form of a market economy, and in 2002 they even grudgingly and partially legalized the already flourishing market economy.

However, these improvements – both de-facto and, in 2002-2005 de-jure – find no expression in the flat line of the Heritage graph which, however, does not fail to notice that after 2005 the situation again began to deteriorate due to a government backlash against the private economy. The backlash was not particularly successful, but it lasted until 2009, and this is correctly reflected by the downward line at the graph.

However, then the graph begins seriously misleading again – and again, seemingly due the same implicit assumption that in North Korea things can go only from bad to worse. The graph depicts 2009 as a year when the level of freedom went even lower – and this is a correct assumption, since in 2009 the authorities undertook currency reform.

The reform’s main, if not sole, purpose was to annihilate the private economy that had survived the 2005-2009 backlashes surprisingly well. There is little doubt that North Korean decision-makers really want, above all, to revive the hyper-Stalinist economy that alone guarantees the regime’s long-term political stability (or so they – and the present author – believe).

However, the 2009 bold attempt to go back to the Stalinist ways ended in complete and pathetic failure – and the government, fearful of the chaos its inept reform created, backpedaled immediately.

The failure of the 2009 currency reform was followed by another wave of economic liberalization. In May 2010, the government lifted all restrictions and bans on private retail trade that were introduced in the 2005-09 backlash. In fact, the North Korean economy nowadays is roughly as free (or rather unfree) as it used to be immediately after the 2002 reforms. But there is no hint of this roller coaster changes in the slowly descending line of the Heritage Foundation Index.

The same is applicable to the economic situation. Every year, we get reports about a looming famine in North Korea – and this year is no exception. A quick look through headlines of major newspapers can clarify that such reports surface with predictable regularity every year.

In March 2008, the International Herald Tribune ran a headline “Food shortage looms in North Korea”. In March 2009, the Washington Post headline said “At the Heart of North Korea’s Troubles, an Intractable Hunger Crisis”. One year later, in March 2010, the Times of London warned: “Catastrophe in North Korea; China must pressure Pyongyang to allow food aid to millions threatened by famine.” In March 2011, The New York Times wrote: “North Korea: 6 Million Are Hungry.” The predictions of gloom come every year, but famine does not.

Actually, from around 2002-2003, we have seen a steady but clear improvement in North Korea’s economic situation. North Koreans are still malnourished, and likely to remain so for the foreseeable future. Nonetheless, they are not starving any more – at least not in significant numbers.

However, opponents of the regime cannot admit that people are not starving or report about (however marginal) improvement of the food situation, since, as I have said, from their viewpoint nothing can possibly improve in North Korea. At the same time, supporters of the regime will not admit that the North Korean people are still malnourished, and the regime itself is active in presenting exaggerated evidence of a looming famine (or perhaps, even fabricating such evidence when necessary) – as this will help it get more free food from the outside, and this is what Pyongyang needs.

One can see the same trends everywhere. For example, human-rights non-governmental organizations keep telling us about a further deterioration in the human-rights situation in the North. However, the evidence tells a different story. Human rights are still by far the world’s worst, but they are better than 20 or 30 years ago.

Just one example of this under-reported improvement will probably suffice. Until the mid-1990s, the entire family of a political criminal – that is, all people who were registered at the same address as he or she, were by default shipped to a concentration camp. Some 10 or 15 years ago, this approach ceased to be universal, so families of many political criminals – including some prominent activists based in Seoul – remained free.

There is little doubt that families are harassed, and even distant relatives of dissenters are denied good jobs and/or the right to reside in Pyongyang and major cities. Nonetheless, there is a great difference between inability to live in a major city and incarceration in what might indeed be the world’s worst prison camp system.

However, this change is seldom reported. Human-rights advocacy groups obviously cannot bring themselves admit that something can get better under the Kim family regime. Probably, they think that such admission would make the situation look less urgent and thus would help the Kim family regime in some indirect way. These worries might be even well-founded – but the result is the tendency to ignore a particular type of “politically incorrect” news.

Paradoxically, regime sympathizers – whose presence is especially noticeable among the South Korean left – are equally reluctant to attract any attention to these minor improvements. It is understandable, since we are talking about changes from the awful to the very bad, and Pyongyang champions cannot bring themselves to admit how brutal and inefficient the regime actually is.

For example, if pro-Pyongyang media outlets report that the “family responsibility” principle does not apply in many cases, they would have to admit that in the supposed “paradise” of national purity and/or anti-globalist determination in North Korea, not only dissenters, but their families as well were shipped to concentration camps until quite recently. No member of South Korea’s radical nationalist left could bring him or herself to admit this fact.

One cannot imagine a pro-North Korean leftist blogger in Seoul triumphantly writing something like this: “In the past, if somebody watched a South Korean melodrama, he would be arrested, beaten unconscious and then sent to prison for life together with his entire family. Nowadays, things are so better: only his teeth – not ribs! – are likely to be broken during an investigation, and then he or she will spend in prison merely a couple years, and his family are now allowed to keep their freedom. What an improvement!”

The sad irony is that this change is actually an improvement, but neither side of the political debate is going to report it. This is confirmation to the old truism: political passions make people oblivious to the obvious. However, propaganda is a poor substitute for honest and objective analysis – even when such propaganda is produced by people who believe it themselves.

Read the full story here:
It’s not all doom and gloom in Pyongyang
Andrei Lankov
Asia Times
2011-9-23

China has reportedly agreed to provide electricity to the Rason special economic zone, and the minimum wage investors can expect to pay the North Korean government to employ North Korean citizens qill be approximately US$80.

According to the Korea Times:

China has agreed to provide electricity to a special economic zone in North Korea’s northeast, a source said Tuesday.

The agreement to provide power to the Rason economic zone was signed between Jang Song-thaek, vice chairman of the North’s powerful National Defense Commission, and China’s Commerce Minister Chen Deming, during an economic meeting on June 8, the source said.

The source cited Chinese officials familiar with the project.

The project calls for laying high-voltage power distribution lines between the Chinese border city of Hunchun and the North’s city of Rajin as well as building a thermal power plant in Rason, the source said.

Construction for the power lines is likely to begin soon while the two sides are in talks to work out details for the envisioned power plant, the source said.

“Power is an important infrastructure in developing the Rason special economic zone,” said Cho Bong Hyun, an expert at the Seoul-based IBK Economic Research Institute. “China’s agreement to provide power increases the chances of the zone’s success.”

The North designated Rason as a special economic zone in 1991 and has since striven to develop it into a regional transportation hub, though no major progress has been made. (Yonhap)

According to Yonhap:

The minimum monthly wage for workers at a North Korean special economic zone has been set at US$80, a source familiar with the reclusive state said Thursday, a small enough sum that could attract Chinese firms to invest there.

North Korea designated Rason as a special economic zone in 1991 with the aim of developing it into a regional transportation hub. Amid few signs of progress, the country broke ground in June on a joint project to develop it into an economic and trade zone with China. The northeastern port city borders both China and Russia.

“According to a booklet I obtained on the tax policy of the Rason economic and trade zone, the minimum monthly wage for workers is $80,” said the source, who spoke on the condition of anonymity.

Under a North Korean law for the Rason economic zone, revised in January last year, the minimum monthly wage for local employees at foreign firms is set jointly by the employer and the municipal authorities.

The amount is higher than the $63.814 recently set as the minimum wage for North Korean workers at the inter-Korean industrial park in Kaesong, the North’s western city bordering South Korea, but less than the average salary of Chinese workers. According to the South’s state-run Korea Trade-Investment Promotion Agency (KOTRA), Chinese workers are paid a minimum of $167 per month.

Experts say this wage gap could attract Chinese investors to Rason, as they have already started showing signs of relocating operations to Vietnam, Indonesia and other countries with cheaper labor than China.

The booklet also contains details of Rason’s tax policy, including a five-year property tax exemption for buildings purchased through private funds and a corporate income tax rate of up to 14 percent, according to the source.

“The booklet was made by Rason’s tax bureau in July-August to introduce foreigners to its tax policy,” the source said.

And according to the Institute for Far Eastern Studies (IFES):

Hwang also elaborated on the eight preferential policies providing special tax benefits to foreign investors. He asserted, “The government of North Korea will guarantee the investment of the foreign investors by not nationalizing or demanding requisitions. For inevitable cases where such demands occur, proper compensation will be provided.”

The income tax is also at 14 percent, which is 11 percent lower than other areas in North Korea. For companies with business plans over ten years, foreign capital companies will receive three years of tax-free benefit starting from the profit earning year and two years thereon after will receive 50 percent tax-free benefits. According to Hwang, over 100 foreign companies and offices are operating businesses currently in the special economic zone.

Read the full stories here:
China agrees to provide power to NK’s Rason economic zone
Korea Times
2011-9-13

Minimum wage at N. Korean special economic zone set at US$80: source
Yonhap
2011-9-8

Stephan Haggard and Dan Pinkston have found and posted comments attributed to Kim Jong-il revealing some of his thinking on “markets” and the “market economy”:

Kim Jong-il, “On the promotion of a superior socialist economy…adhering to the principles of socialism” June 18, 2008, dialogue with party and state officials.

“…As I said on many occasions during the recent period, one must have a correct understanding of the market. As we allowed a certain use of markets with respect to economic management, some people understood this as a departure from the socialist principle and as a move towards a market economy through “reform” and “opening up” of the country’s economy.

But this is a very wrong way of reasoning. Having a misguided understanding of the market and the market economy on the part of economic planners shows their lack of ideology and knowledge… [If] one fails to exactly and deeply recognize the party’s ideology and policy with regards to economic planning, that person will have his or her faith in the superior socialist economy shaken and can be dazzled by “reform” or “opening up” that the imperialists brag about and also be captured by the fantasy that the capitalist market economy promises.

Workers need to be awakened from these pitfalls…. Markets are both home to and a hotbed for un-socialist phenomenon and capitalist factors in the economic sectors. Without devising a national plan about markets and neglecting them as they are, or further encouraging their activities and expanding their reach, the country’s economy will inevitably turn into a market economy. However, following the practical conditions by using the market to a certain extent while keeping it under national control does not necessarily mean a movement towards market economy. Markets and a market economy are not the same concepts. The question resides in how to perceive and treat the market, and how to use it following [appropriate] principles and direction…”

-Original text in Korean

“…….내가 최근시기 여러 기회에 말하였지만 시장에 대한 인식을 바로 가져야 합니다. 우리가 경제관리에서 시장을 일정하게 리용하도록 하였더니 한때 일부 사람들은 사회주의 원칙에서 벗어나 나라의 경제를 《개혁》《개방》하여 시장경제로 넘어가는 것처럼 리해한 것 같은데 이것은 아주 잘못된 생각입니다. 경제지도일꾼들이 시장과 시장경제에 대한 그릇된 인식을 가지게 되는 것은 사상의 빈곤 지식의 빈곤에 빠져있다는 것을 말해줍니다. 누구나 할 것 없이 경제사업과 관련한 당의 사상과 방침을 정확히, 깊이있게 인식하지 못하면 사회주의 경제의 우월성에 대한 신념이 흔들리게 되어 제국주의자들이 떠벌이는 《개혁》《개방》에 현혹될 수 있고 자본주의 시장경제에 대한 환상에 사로잡힐 수 있는 것입니다. 이에 대하여 일군들이 각성을 높여야 합니다….시장은 경제분야에서 나타나는 비사회주의적 현상, 자본주의적 요소의 본거지이며 온상입니다. 시장에 대하여 아무런 국가적 대책도 세우지 않고 그대로 내버려 두거나 시장을 더욱 조장하고 그 령역을 확대하는 방향으로 나간다면 불피코 나라의 경제가 시장경제로 넘어가게 됩니다. 그러나 현실적 조건에 따라 국가적 통제 밑에 시장을 일정하게 리용하는 것이 곧 시장경제로 가는 것은 아닙니다. 시장과 시장경제는 같은 개념이 아닙니다. 문제는 시장을 어떻게 보고 대하며 그것을 어떤 원칙과 방향에서 어떻게 리용하는가 하는데 있습니다….”

Marcus Noland followed up with a [longer] publication by Kim Jong-il’s sister, Kim Kyong-hui:

Strengthening Centralized, Unified State Guidance Over Economy, Kyo’ngje Yo’ngu

Our army and people are vigorously carrying out a general onward march to elevate the economy to a stage of leaping development through a new great revolutionary upswing under the great party’s military-first leadership.

Today, when our country is displaying its majestic appearance and might as a politically, ideologically, and militarily powerful state, in order to build it into an economically powerful socialist state and a socialist paradise where the people enjoy an affluent life with nothing more to desire in the world by concentrating efforts on the economic construction and on improving the people’s living standard, it is necessary to adhere to the socialist principle in the economic work and bring the superiority of the socialist planned economy into high play, and what is important in this is to strengthen the centralized and unified guidance of the state over the economic construction.

The great leader [ryo'ngdoja] Comrade Kim Jong Il [Kim Cho'ng-il] has pointed out the following:

“Above all else, it is necessary to strengthen the centralized and unified guidance of the state over the economic construction.”

Strengthening the centralized and unified guidance of the state in the socialist economic management arises as a basic demand for improving the economic management in line with the intrinsic nature of socialist society, further consolidating and developing the socialist economic system by bringing the superiority of the socialist planned economy into high play, and accelerating the construction of an economically powerful state.

Strengthening the centralized and unified guidance of the state is a basic demand for improving the socialist economic management because, above all, managing and operating the country’s economy in a planned manner under the state’s centralized and unified guidance is an intrinsic demand of the socialist economy that is based on collectivism and a basic principle of the socialist economic management.

Realizing the centralized and unified guidance of the state in the socialist economic management serves as a lifeline of the socialist economic management, which stems from the natural law-governed nature of the socialist economic development and the essential characteristics of the socialist economy.

The centralized and unified guidance of the state over the economy is, above all, an intrinsic demand of the socialist economy that is based on collectivism. The socialist economy is a large-scale collective economy in which all sectors and units of the people’s economy are organically connected with each other based on social ownership of the means of production, and it is a highly organized and centralized planned economy. This is the essential superiority of the socialist planned economy, which is distinct from the capitalist market economy that operates spontaneously on the basis of private ownership of the means of production. In a capitalist society, the bourgeois state is not able to perform the function of interconnecting the management activities of different enterprises and leading them in one direction. In a capitalist society, the economy moves in a spontaneous manner amid the pursuit of profits and competition based on the law of the jungle due to the conflict of interests between the capitalist class and the working popular masses and among capitalists, and this accompanies the bankruptcy of enterprises.

In contrast, the socialist economy is based on social ownership of the means of production, and it is managed and operated through goal consciousness by the popular masses as the masters. Social ownership of the means of production calls for combining all economic sectors and units into a single production organism, and also for the factories and enterprises comprising its components to move under a unitary command. Realizing planned ties between factories and enterprises and ensuring that the economy operates under a single unitary command are firmly guaranteed by the unified guidance of the socialist state.

The centralized and unified guidance of the state over the economy is also a basic principle of the socialist economic management.

Apart from the centralized and unified guidance of the state and the principle of managing a planned economy, socialism cannot be defended in the economic field, and the socialist economy cannot be developed.

The initiative of lower units has to be brought into high play in the socialist economic management, but this has to be achieved strictly on the basis of firmly guaranteeing the centralized and unified guidance of the state and within the framework of the socialist planned economy. It is only through the centralized and unified guidance of the state that it is possible to correctly map out plans so as to guarantee the greatest actual profits consistent with national interests and the all-people’s economic interests, mobilize all production potentials of the country to the maximum, concentrate forces and resources on the objects that are of key significance in the overall economic development, and thus achieve a planned and balanced development of the economy. If one moves in the direction of giving a free rein to economic management and enterprise management in an attempt to enhance the initiative of lower units and strengthen their “independence” and “self-reliance,” then the lower units will break way from the unified guidance and control of the state and act as they please, and this will not only bring about tremendous national waste and loss but also make it impossible to neither defend socialism in the economic field nor develop the socialist economy.

Strengthening the centralized and unified guidance of the state is a basic demand for improving the socialist economic management also because the centralized and unified guidance of the state over the economy has to be strengthened in order to be able to mobilize all potentials to the maximum based on the principle of self-reliance and thus elevate the country’s economy to a stage of leaping development and accelerate the construction of an economically powerful socialist state.

Today’s great upswing calls for more highly holding up the banner of self-reliance, and an economically powerful socialist state is a powerful state of self-reliance, a powerful state with a mighty self-supporting national economy.

We have laid the strong foundation of a socialist self-supporting national economy by highly displaying the revolutionary spirit of self-reliance under the wise leadership of the great leader [suryo'ngnim] and the respected and beloved general. Mobilizing and utilizing the potential of the already provided foundation of a self-supporting economy to the maximum is the most accurate way to elevate the country’s economy to a stage of leaping development and accelerate the construction of an economically powerful socialist state in our style in the present circumstances.

Though many obstacles are still lying in the way ahead of us, we have to open a road of advance for victory by relying on the boundless creative ability of all the people, our resources and technology, and the superiority of our system.

The centralized and unified guidance of the state over the economy has to be strengthened in order to elevate the country’s economy to a stage of leaping development by mobilizing the potential of the already provided foundation of a self-supporting national economy to the maximum and to accelerate the construction of an economically powerful socialist state.

Above all, the centralized and unified guidance of the state has to be strengthened in order to ensure a balanced and harmonious development of the economy in conformity with the aspiration and demand of the popular masses. An important task we are faced with in the economic construction at the present time is to rely on the superiority of the socialist planned economy to closely combine the normalization of production with modernization and push ahead with it vigorously, and thus decisively surpass the highest production level in all sectors of the people’s economy. It is only under the condition of strengthening the centralized and unified guidance of the state that it is possible to create the military-first era’s speed of waging the general onward march by mobilizing all production potentials of the country to the maximum from the viewpoint of national interests consistent with the party’s policy demands, and also accelerate the construction of an economically powerful socialist state by harmonizing the production ties centered on the objects of key significance in the economic development, guaranteeing the planned and disciplined nature of the economic work, and thus achieving a balanced development of the overall economy.

The centralized and unified guidance of the state has to be strengthened also to be able to bring the initiative of individual sectors and units, and local areas into high play and thus actively mobilize and utilize the potential of the self-supporting economy.

There may be things that are in short supply and that are missing in the process of building an economically powerful state. This is why the demand for bringing the initiative of each sector and unit into high play arises in order for all sectors and units of the people’s economy to normalize production and surpass the highest production level based on the existing assets.

Only when the centralized and unified guidance of the state over the economy is realized smoothly, is it possible to enhance the initiative of all sectors and units in line with the intrinsic requirement for the development of socialist economy that is based on collectivism and decisively boost the economic effectiveness in mobilizing and utilizing the reserves.

Strengthening the centralized and unified guidance of the state over the economy in no ways means disregarding the initiative of lower units. The socialist economic construction can be carried out successfully only when the unified guidance of the state is combined correctly with the initiative of lower units. This is because if the state’s centralized and unified guidance enables the economy to develop harmoniously on a pan-social level, then the initiative of lower units spurs factories and enterprises to increase production and perfect the production and technical processes on their own by positively exploring and mobilizing the existing reserves and production potentials pursuant to the economic plans established by the state. If the lower units are restrained based on the opinion that the management activities of each unit should be unconditionally subordinate to the state, then the initiative of factories and enterprises will be suppressed and the production will not proceed smoothly. This is why the centralized and unified guidance of the state over the economy is based on the premise of further enhancing the initiative of lower units.

All the economic guidance functionaries should have a correct perception of the state’s centralized and unified guidance and realize it correctly, and thus bring the genuine superiority of socialist planned economy into high play.

“위대한 당의 선군령도따라 우리 군대와 인민은 새로운 혁명적대고조로 경제를
비약적인 발전단계에 올려세우기 위한 총진군을 힘있게 벌려나가고있다.

정치사상강국, 군사강국의 위용과 위력을 온 세계에 떨치고있는 오늘 경제건설과
인민생활향상에 힘을 집중하여 우리 나라를 사회주의경제강국으로, 인민들이
세상에 부러움없이 잘 사는 사회주의락원으로 건설하기 위하여서는 경제사업에서
사회주의원칙을 고수하고 사회주의계획경제의 우월성을 높이 발양시켜야 하며
여기서 중요한것은 경제건설에 대한 국가의 중앙집권적, 통일적지도를
강화하는것이다.

위대한 령도자 김정일동지께서는 다음과 같이 지적하시였다.

《무엇보다도 경제건설에 대한 국가의 중앙집권적, 통일적지도를 강화하여야
합니다.》

사회주의경제관리에서 국가의 중앙집권적, 통일적지도를 강화하는것은
사회주의사회의 본성에 맞게 경제관리를 개선하고 사회주의계획경제의 우월성을
높이 발양시켜 사회주의경제제도를 더욱 공고발전시키며 경제강국건설을
다그치기 위한 기본요구로 제기된다.

국가의 중앙집권적, 통일적지도를 강화하는것이 사회주의경제관리개선의
기본요구로 되는것은 무엇보다먼저 나라의 경제를 국가의 중앙집권적,
통일적지도밑에 계획적으로 관리운영하는것이 집단주의에 기초한 사회주의경제의
본성적요구이며 사회주의경제관리의 기본원칙이기때문이다.

사회주의경제관리에서 국가의 중앙집권적, 통일적지도를 실현하는것은
사회주의경제발전의 합법칙성과 사회주의경제의 본질적특성으로부터 출발한
사회주의경제관리의 생명선이다.

경제에 대한 국가의 중앙집권적, 통일적지도는 우선 집단주의에 기초한
사회주의경제의 본성적요구이다. 사회주의경제는 생산수단에 대한 사회적소유에
기초하여 인민경제의 모든 부문들과 단위들이 유기적으로 련결된 대규모의
집단경제이며 고도로 조직화되고 중앙집권화된 계획경제이다. 이것은 생산수단에
대한 사적소유에 기초하여 자연발생적으로 움직이는 자본주의시장경제와 다른
사회주의계획경제의 본질적우월성이다. 자본주의사회에서는 부르죠아국가가
각이한 기업체들의 경영활동을 서로 맞물리고 하나의 방향으로 이끌어나갈수
있는 기능을 수행할수 없다. 자본주의사회에서는 자본가계급과
근로인민대중사이, 자본가들사이의 리해관계의 대립으로 하여 경제가 리윤추구와
약육강식의 경쟁속에서 자연발생적으로 진행되며 이것은 기업파산을 동반한다.

이와는 달리 사회주의경제는 생산수단에 대한 사회적소유에 기초하고있으며
인민대중이 주인이 되여 목적의식적으로 관리운영된다. 생산수단에 대한
사회적소유는 모든 경제부문, 단위들을 하나의 생산유기체로 결합시키는 한편 그
구성부분으로 되는 공장, 기업소들이 유일적인 지휘에 따라 움직일것을
요구한다. 공장, 기업소들사이에 계획적인 련계를 실현하며 경제가 하나의
유일적인 지휘밑에 움직이도록 하는것은 사회주의국가의 통일적지도에 의하여
확고히 담보된다.

경제에 대한 국가의 중앙집권적, 통일적지도는 또한 사회주의경제관리의
기본원칙이다.

국가의 중앙집권적, 통일적지도와 계획적경제관리원칙을 떠나서는 경제분야에서
사회주의를 지킬수 없고 사회주의경제를 발전시킬수도 없다.

사회주의경제관리에서 아래단위의 창발성을 높이 발양시켜야 하지만 그것은
어디까지나 국가의 중앙집권적, 통일적지도를 확고히 보장하는 기초우에서,
사회주의계획경제의 테두리안에서 이루어져야 한다. 국가적리익,
전인민경제적리익에 맞게 가장 큰 실리를 보장할수 있도록 계획을 세우며 나라의
모든 생산잠재력을 최대한으로 동원하고 전반적경제발전에서 관건적인 의의를
가지는 대상들에 력량과 자원을 집중하여 경제의 계획적, 균형적발전을
이룩하는것은 국가의 중앙집권적, 통일적지도에 의해서만 옳게 실현될수 있다.
아래단위의 창발성을 높이고 《독자성》과 《자립성》을 강화한다고 하면서
경제관리, 기업관리를 풀어놓는 방향으로 나간다면 아래단위들이 국가의
통일적지도와 통제에서 벗어나 제멋대로 움직이게 되며 국가적으로 막대한
랑비와 손실을 가져오는것은 물론 경제분야에서 사회주의를 지킬수도 없
사회주의경제를 발전시킬수도 없다.

국가의 중앙집권적, 통일적지도를 강화하는것이 사회주의경제관리개선의
기본요구로 되는것은 다음으로 경제에 대한 국가의 중앙집권적, 통일적지도를
강화하여야 자력갱생의 원칙에서 모든 잠재력을 최대한 동원하여 나라의 경제를
비약적인 발전단계에 올려세우고 사회주의경제강국건설을 다그칠수
있기때문이다.

오늘의 대고조는 자력갱생의 기치를 더 높이 들것을 요구하며
사회주의경제강국은 자력갱생의 강국, 위력한 자립적민족경제의 강국이다.

우리는 위대한 수령님과 경애하는 장군님의 현명한 령도밑에 자력갱생의
혁명정신을 높이 발휘하여 사회주의자립적민족경제의 토대를 튼튼히 마련하였다.
이미 마련된 자립적경제토대의 잠재력을 최대한 동원리용하는것은 오늘의
형편에서 우리 식으로 나라의 경제를 비약적인 발전단계에 올려세우
사회주의경제강국건설을 다그치는 가장 정확한 길이다.

우리앞에는 의연히 많은 난관이 가로놓여있지만 전체 인민의 무궁무진한
창조력과 우리의 자원과 기술, 우리 제도의 우월성에 의거하여 승리의 진격로를
열어나가야 한다.

이미 마련된 자립적민족경제토대의 잠재력을 최대한 동원하여 나라의 경제를
비약적인 발전단계에 올려세우고 사회주의경제강국건설을 다그치자면 경제에
대한 국가의 중앙집권적, 통일적지도를 강화하여야 한다.

우선 국가의 중앙집권적, 통일적지도를 강화해야 인민대중의 지향과 요구에 맞게
경제의 균형적이고 조화로운 발전을 보장할수 있다. 현시기 경제건설에서
우리앞에 나서는 중요한 과업은 사회주의계획경제의 우월성에 의거하여
생산정상화와 현대화를 밀접히 결합시켜 힘있게 밀고나감으로써 인민경제 모
부문에서 최고생산수준을 결정적으로 돌파하는것이다. 국가의 중앙집권적,
통일적지도를 강화하는 조건에서만 당의 정책적요구에 맞게 국가적리익의
견지에서 나라의 모든 생산잠재력을 최대한 동원하여 선군시대의 총진군속도를
창조할수 있으며 이와 함께 경제발전에서 관건적인 의의를 가지는 대상들을
중심으로 생산적련계를 조화롭게 하고 경제사업에서 계획성과 규률성을 보장하여
전반적경제의 균형적발전을 이룩함으로써 사회주의경제강국건설을 다그칠수
있다.

또한 국가의 중앙집권적, 통일적지도를 강화하여야 개별적부문과 단위, 지방의
창발성을 높이 발양시켜 자립경제의 잠재력을 적극 동원리용할수 있다.

경제강국을 건설하는 과정에는 부족한것도 있고 없는것도 있을수 있다. 따라서
인민경제 모든 부문, 모든 단위에서 있는 밑천을 가지고 생산을 정상화하
최고생산수준을 돌파하기 위하여서는 매개 부문, 단위의 창발성을 높이
발양시켜야 할 요구가 제기되게 된다.

경제에 대한 국가의 중앙집권적, 통일적지도를 원만히 실현하여야 모든 부문,
모든 단위의 창발성을 집단주의에 기초한 사회주의경제발전의 본성적요구에 맞게
발전시킬수 있으며 예비를 동원하고 리용하는데서 경제적효과성을 결정적으로
높일수 있다.

경제에 대한 국가의 중앙집권적, 통일적지도를 강화한다는것은 결코 아래단위의
창발성을 무시한다는것을 의미하지 않는다. 사회주의경제건설은 국가의
통일적지도와 아래단위의 창발성을 옳게 결합시킬 때 성과적으로 진행될수 있다.
그것은 국가의 중앙집권적, 통일적지도가 전사회적범위에서 경제가 조화롭게
발전될수 있게 한다면 아래단위의 창발성은 공장, 기업소들이 국가가 세운
경제계획에 따라 있는 예비와 생산잠재력을 적극 탐구동원하여 생산을 늘이
자체로 생산기술공정을 완비하도록 추동하기때문이다. 만일 매개 단위의
경영활동이 국가에 무조건 복종되여야 한다고 하면서 아래단위를 얽어매놓으면
공장, 기업소들의 창발성이 억제되여 생산을 원만히 진행할수 없게 된다.
그러므로 경제에 대한 국가의 중앙집권적, 통일적지도는 아래단위의 창발성을
더욱 높이는것을 전제로 한다.

모든 경제지도일군들은 국가의 중앙집권적, 통일적지도에 대한 옳은 인식을
가지고 이를 옳바로 실현함으로써 사회주의계획경제의 참다운 우월성을 높이
발양시켜나가야 할것이다.”